Patent Troll Lodsys: All We Want Is 0.575% Of The Entire Mobile In-App Payment Ecosystem, Is That So Wrong?

Following last week's news of patent troll Lodsys going after a bunch of independent or individual iOS (iPhone/iPad) developers who were making use of Apple's in-app payment offerings (as required by Apple if you want to sell within an app), the company has put up a blog FAQ where it seeks to answer a bunch of questions that people have been asking.

It's basically a compendium of ridiculous, silly and debunked arguments for why patent trolling is awesome (while also denying that Lodsys is a patent troll). There were some weakly-sourced rumors over the weekend that Lodsys was a front company for Intellectual Ventures, but there wasn't much significant evidence to support that, and Lodsys denies it. It is true that the patents in question were once owned by IV, who sold them (and it's not clear if IV still has an economic interest in the patents -- something it allegedly keeps with some of its patent sales, though it's notoriously secretive in such deals). However, Lodsys insists that IV sold all of its rights to Lodsys. 

Of course, the key question is what does Lodsys want. There was some speculation that it was pushing for a license from Apple, but it notes that Apple already has a license (though, it's almost certainly from when the patents were held by IV). It also notes that Microsoft and Google hold licenses (again, potentially via IV), so it may be going after developers on other devices soon too. Of course, Lodsys pretends that the licenses from Apple, Google and Microsoft show that the patents are legit, but that's being deceptive yet again. From the details, it's almost entirely certain that all three companies got the license as a part of a blanket license from IV, and had no idea about this specific patent, nor took any interest in the details of this particular patent. For Lodsys to pretend this legitimizes their patent is yet another example of patent trolls being misleading. This patent was not considered important by Apple, Google or Microsoft. It was almost certainly included in a bulk licensing deal.

Finally, Lodsys points out that it has no interest in receiving a single lump sum from big companies, claiming that it's likely to get "the best return" by shaking down developers one-by-one-by-one. So, what does Lodsys want? Well, it appears to want at least 0.575% of the entire in-app payment market:

In the case of an Application doing an in-application upgrade (and only this scenario), Lodsys is seeking 0.575% of US revenue over for the period of the notice letter to the expiration of the patent, plus applicable past usage.

Of course, since the power of in-app payments is that it lets you do a lot more than just app upgrades, you have to imagine Lodsys is asking for a lot more in those other cases. 

And for what? For coming up with an insanely abstract idea that was a natural and obvious evolution of such apps. No one -- no one -- came up with the concept or implementation of in-app payments for mobile device apps because of this patent. And, of course, this assumes (incorrectly, of course) that this will be the only patent that someone digs up that appears to (broadly defined) cover things like in-app payments. If all such patent holders start demanding 0.575% (or more) this will put a huge burden on developers. 

Lodsys talks high and mighty about "property rights" and paying those who are owed money in its blog, but those claims are laughable. First, it claims that it's Lodsys patents that are responsible for in-app payments:

The economic gains provided by the Lodsys inventions (increase in revenue through additional sales, or decrease in costs to service the customer) are being enjoyed by the business that provides the product or service that interacts with the user. Since Lodsys patent rights are of value to that overall solution, it is only fair to get paid by the party that is accountable for the entire solution and which captures the value (rather than a technology supplier or a retailer).

But that assumes, totally incorrectly, that Lodsys or even the original patent was instrumental in making this happen. It was not. This is the natural evolution of app development. But Lodsys can't let up and gets ridiculous:

As a comparative example, it is the owner of the hotel who is responsible for the overall service (value proposition) that guests pay for, not the owner of the land that the hotel may be leasing, not the travel agent that sold the reservation, not the manufacturer of tools such as hammers, nor the provider of materials such as nails or steel beams, which may be used in building the hotel; nor is it the outsourced linen washing service or the architect of the building who is responsible. Lodsys’ patent portfolio is being used as a part of an overall solution and we are seeking to be paid for the use of patent rights by the accountable party.

Except that whole first part disagrees with the conclusion Lodsys is shooting for. Yes, the owner of a hotel is responsible for its overall service, but if you went to the owner of a hotel and said "hey, I came up with the idea of putting bathrooms in hotel rooms, pay me," the owner of the hotel would laugh at you. Because that's just a basic implementation that's an obvious advance as a result of indoor plumbing. Ditto for in-app payments. That's an obvious advance in the evolution of mobile apps. Again, no one is doing in-app payments because they suddenly discovered this Lodsys patent and its vague and useless descriptions. 

There's also the myth of the brilliant inventor shining the light on this concept via this patent for the rest of the world to learn from:

Dan Abelow is an independent inventor who visualized/created metaphors, documented for the world to see (in exchange for exclusivity) and created value for doing so. This ideation, as expressed in the patent, enabled a building block for others to build on and create more value.

That assumes that the people being sued actually built off of this patent. Lodsys presents absolutely no evidence to support such claims, because it almost certainly has none. Of course, Lodsys defends patent trolling and insists that people who don't like this are just freeloaders:

In aggregate, this cycle of patent licensing means that more invention can happen and it means that the economic profit pie is distributed more efficiently to suppliers of building blocks that are incorporated in the products or services.

This is false. And it's been shown false over and over and over again by various economic studies. It's based on the very false assumption that any economic activity is good economic efficiency. When the economic activity involves artificial protectionist barriers to innovation (which is what's happening here), then nearly every serious economist will point out the serious costs involved in hindering economics. To claim that this means more invention can happen is simply not supported by the evidence at all, which suggests more optimal results are found without patents getting in the way.

There are lots of bills in life that it would be preferable to not pay if one didn’t have to. Lodsys is just trying to get value for assets that it owns, just like each and every company selling products or services is, trying to do business and make a profit. Its odd that some of the companies that received notices had such a visceral reaction. Some of these companies have our favorite apps, for which we paid the asking price. We realize you have to get paid for your work and so do we.

It's not that people don't want to pay these bills. It's that they think it's ridiculous that some company that no one's ever heard of, holding some piece of paper that includes nothing of value or relevant to these developers, is suddenly demanding a cut for doing absolutely nothing. That's incredibly different than someone paying for an app that they liked.